Dyax Corp. Q3 2009 Earnings Call Transcript

| About: Dyax Corp. (DYAX)
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Dyax Corp. (NASDAQ:DYAX) Q3 2009 Earnings Call October 28, 2009 10:00 AM ET


Gustav Christensen - President & CEO

George Migausky - EVP & CFO

Bill Pullman - EVP & Chief Development Officer

Nicole Jones - Director of IR


Kim Lee - Wedbush Securities

Mark Monane - Needham & Company

Brian Skorney - ThinkEquity

Phil Nadeau - Cowen & Co


Good day ladies and gentlemen, and welcome to Dyax Corp third quarter 2009 financial earnings call. At this time, I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open up the call for a brief question-and-answer period at the end of the presentation.

Before turning this call over to Gustav Christensen, President and Chief Executive Officer of Dyax, the company will read their Safe Harbor statement.

Nicole Jones

This morning Dyax issued a press release concerning its third quarter 2009 financial results. Dyax would like to remind everyone that statements made today reflect its expectations of future programs, collaborations, strategies and financial performance, and are forward-looking statements. These statements, including those regarding prospects for FDA review and approval of the BLA for DX-88 are based on management’s current assumptions and are subject to risks and uncertainties that could cause actual events and results to differ materially.

Important information concerning these risks and uncertainties is contained in Dyax’s press release today and described or referred to in its most recent Form 10-K and other periodic reports filed with the SEC and also are available on the company’s website at www.dyax.com.

I will now turn the call over to Gustav Christensen, President and CEO of Dyax. Gustav.

Gustav Christensen

Thank you, Nicole. Good morning everyone. I would like to welcome you to Dyax’s third quarter conference call. Over the past year, we begun nearly all quarterly calls by describing the progress we have made in advancing our business strategy. This quarter is no different and no less exciting.

As we near the PDUFA date for DX-88 in hereditary angioedema or HAE, our commercial preparations are rapidly moving forward. At the same time, we’re seeing a number of positive developments in our DX-88 partner programs and our Licensing and Funded Research Program.

I would also like to highlight pleasant and positive communication we had with the FDA related to the review of DX-88 in hereditary angioedema. We received from the agency formal clarification on the requirements of the risk evaluation and mitigation strategy or REMS requested for DX-88's approval.

Our REMS, which has been significantly scaled back will now consist of two components, a medication guide and a communication plan. Before discussing this recent news and our other accomplishments in detail, our EVP and Chief Financial Officer, George Migausky will lead off the call with a review of the quarterly financial highlights. In addition to George, two other members of the senior management team are joining me on the call today; Bill Pullman, EVP and Chief Development Officer; Ivana Magovcevic-Liebisch, EVP of Corporate Development and General Counsel.

So with that, I would like to turn the call over to George.

George Migausky

Thank you, Gustav and good morning to all. I refer everyone to our press release from this morning for detailed results, and I will now review certain financial highlights for the third quarter of 2009.

Our revenue for the third quarter was $4.5 million, compared to $5.5 million in the same quarter last year. And for the nine month period, revenue increased to $15.3 million from $12 million in 2008.

The 2009 increase in revenues was primarily due to additional revenue recognized under the Licensing and Funded Research Program or LFRP, and Gustav will speak more about the success of our LFRP in a moment.

I’d like to point out that in addition to the revenues recognized and reported here today, we still have approximately $30.4 million in revenue deferred from both the LFRP and from recently completed and strategic transactions, and this differed revenue will be recognized over time in future periods.

With respect to operating expenses for the quarter, these costs decreased to $14.4 million from $22.3 million in 2008, and for the nine months period of 2009, operating expenses decreased to $60 million from $72.3 million in 2008.

Within these operating expenses, research and development costs decreased in 2009, despite new and additional costs of $7.5 million associated with the manufacture of DX-88 drug substance, and the decrease in R&D expenses was due to the following.

The workforce reduction implemented in late March of this year, together with other external cost reductions; reduced clinical trial costs in 2009; expenses eliminated at Dyax from the out-licensing in 2008 of DX-2240 and DX-88 in on-pump cardiac surgery, and the closing of our Liege, Belgium research facility also in 2008.

General and administrative costs which include the pre-approval commercialization costs around DX-88 for HAE, increased to $5.9 million during the third quarter as compared to $4.9 million for the same quarter in 2008, and this increase is directly attributable to DX-88 commercialization costs.

For the third quarter of 2009, Dyax reported a net loss of $12.2 million or $0.17 per share, as compared to a net loss of $26.6 million or $0.43 per share for the same quarter in 2008. And for the nine-month period, Dyax net loss in 2009 was $51.5 million or $0.78 per share, as compared to a net loss of $72.9 million or $1.19 per share for the same period in 2008.

At September 30, 2009, we had cash, cash equivalents and short-term investments totaling $41.1 million, exclusive of restricted cash, and including the $20.5 million of net proceeds from the equity offering completed on October 5, 2009, Dyax would have had cash, cash equivalents and short-term investments totaling $61.6 million as of September 30, 2009.

Moving on to guidance, over the past two years, we’ve demonstrated our commitment to manage cash resources through a combination of strategic transactions, partnerships, and disciplined cost management. This approach supports our long-term business success and allows us to provide and direct the necessary resources to commercialization of DX-88 for HAE.

We’ve been dedicated to the strategy of using various options to finance the company in order to limit dilution to our shareholders. For example, over the last twenty months, we have access to approximately $125 million of cash from various sources, of which only 30% was from conventional equity financings, and this includes the $20.5 million of equity from selling $5.5 million shares in early October.

That transaction, priced at $3.83 per share represented a 90% increase from the share price at the end of June. So at this time we believe we have the cash and other resources to fund operations through 2010.

Now I'll turn the call back to Gustav.

Gustav Christensen

Thank you, George. This has been a very productive quarter for Dyax, and we have many developments to review. I will start first with an update on the regulatory review of DX-88 in HAE and the progress with our commercial strategy for this indication, followed by the developments in our DX-88 partner programs. And finally, updates on the success of our Licensing and Funded Research Program.

Starting with DX-88, the December 1 PDUFA date for DX-88 in HAE on the horizon. We are diligently moving forward the key elements of our marketing strategy to ensure a successful launch. At the same time our medical and regulatory teams have continued to respond to the inquiries from the FDA to finalize the BLA review.

On this point, the team has gained clarity from the FDA on the specific components required for the REMS for the approval of DX-88. The FDA has recently notified us that certain elements of our proposed REMS to assure safe use, particularly the concept of a closed distribution system will not be required.

The rationale that they provided is that the risk of hypersensitivity is not unique to DX-88. Other protein therapies with a similar risk of anaphylaxis have not exhibited the need for a restricted program with elements of safe use.

Therefore, while the REMS is still required, our understanding of REMS that will support approval, will now be a more narrow of scope than was initially requested; consisting of two components; a medication guide and a communication plan.

The main reason for these components is to inform patients and healthcare professionals about the risk of anaphylaxis, and the clinical signs and symptoms of HAE, may overlap with signs of hypersensitivity, including anaphylaxis. We are pleased that these components are inline with the REMS requirements for nearly all biological products. We are continuing to engage in discussions with the FDA, as they finalize their review.

Another positive outcome during the quarter was that the FDA completed the review of our trade name Kalbitor and has found it acceptable. It is spelled Kalbitor. Going forward we will use Kalbitor when referring to DX-88 in HAE.

While moving forward through the filed stages of the regulatory process, our marketing and medical affairs teams have also been advancing the commercial plan for Kalbitor, a key step to ensure the readiness of our commercial and medical science support structure (inaudible).

As we’ve said in the past we anticipate our commercial sales team to be comprised of approximately 16 representatives. We have a sales team that has been signed up, but will not be hired until approval of Kalbitor by the FDA.

On board and gaining an in depth understanding of Kalbitor and HAE are three of the five Medical Science Liaisons, who will make up our field based medical affairs team. We anticipate to having the remaining MSLs hired and trained by lots.

Another critical step is to finalize the plans for our comprehensive patient and physician support program. The primary goals for this program which will be managed by our selected specialty pharmacy distributor, is to act as a central hub; first, to educate patients and healthcare professionals so that they are knowledgeable about Kalbitor, second, to coordinate site of treatment to ensure access to the product 24/7 and serve to help facilitate the reimbursement process.

The HAE community has waited a very long time for a therapy for treating acute attacks. Until recently there was no products approved in the U.S. for this indication. With the recent approval of being our, it is fortunate that patients will soon have an option for treating their abdominal and facial acute attacks.

However, this still leave open an important unmet medical need, namely an approved treatment for the most serious potentially life-threatening laryngeal attacks. With Kalbitor, we hope to provide this facing community with an additional treatment option and have perceived a robust clinical program to achieve this aim.

In addition, to successfully completing the largest placebo-controlled evaluation of any HAE therapy, the Kalbitor program was the only randomized placebo-controlled program that treated all types of acute attack locations, including potentially life-threatening laryngeal attacks. These are two of Kalbitor's unique characteristics important to patients and physicians.

Other characteristics include ease-of-use namely as a subcutaneous therapy and also as a recombinant protein there is no risk of viral or prion contamination. We also have an extensive dataset demonstrating rapid onset and sustained response. We continue to build our data base through an on-going open-label continuation study. To-date this study have treated more than 130 patients and administered nearly 600 doses.

Dyax and two key opinion leaders will have the opportunity to present more data from our Kalbitor program at the upcoming American College of Allergic, Asthma and Immunology, called the ACAAI Meeting in early November, with the presentation of four abstracts, two oral presentations, and two posters. These data provide additional information about the clinical benefit of Kalbitor treatment for acute of HAE attacks.

While HAE is the most advanced angioedema program, there are on-going programs in acquired angioedema and ACE-inhibitor induced angioedema. Both of these studies have received internal Review Board approval at their respective institutions. We are now waiting first patient treatment which we anticipate by year end.

Kalbitor’s expansion in other angioedema’s is only one part of our strategy. One or more partners for commercialization of Kalbitor outside North America is an important component of this strategy. And our target remains to have at least one partnership in placed at year end. While negotiations are on-going, we are moving forward ourselves with the required elements for European filing.

Now, moving on to our partner programs in surgical indications and retinal disease. Cubist our partner evaluating DX-88 in on-pump cardiac surgery has been making steady progress with the Phase II clinical program, anticipating several miles stones to be met next year.

According to Cubists those Phase II trials known know as conserved one and conserved two are accruing well and data from these trials are on track to be unblinded in early 2010. Cubist expects to be prepared for an end-of-phase-II meeting with the FDA in the middle of 2010, which would be followed by a meeting with EMEA that is the European agency.

By the end of 2010, we anticipate finalizing the Phase III plan for the DX-88 program based on the takeaways from the regulatory meetings. We are pleased with the progress thus far, and look forward to these upcoming milestones. Related to our partner, Fovea Pharmaceuticals, for DX-88 in ophthalmic indications in the EU, Sanofi-Aventis recently announced its intention to acquire Fovea.

DX-88, also known as FOV 2302 is in Phase I development for the treatment of retinal vein occlusion or RVO-induced macular edema. Under the terms of the Dyax-Fovea partnership, Fovea has exclusive rights to this indication in the EU and is fully funding development for the RVO program for approval in worldwide markets.

Dyax retained rights for ophthalmic indications for all territories outside the EU. We are excited for Fovea and pleased that DX-88 was recognized as a key asset in the proposed acquisition by Sanofi-Aventis.

Overall, our partner programs have made tremendous progress and we are looking forward to reporting on the future developments. Beyond the DX-88 potential franchise, be capitalizing on the value and potential of our proprietary phage display technology by leveraging it in two ways; first, to grow our internal discovery and development pipeline, and second, to generate revenues through licenses and collaborations under the Licensing and Funded Research Program or LFRP.

Starting with our internal pipeline, through strategic partnerships with Cubist and Fovea, and further emphasized by the Sanofi-Aventis proposed acquisition of Fovea, DX-88 has earned recognition as a novel candidate for multiple indications. This candidate identified utilizing our phage display technology, validates our capabilities to discover and develop novel therapeutics.

The license by Sanofi of our internally discovered oncology candidate DX-2240 is another indication of the greater recognition we are receiving for our proprietary research and discovery programs. As we have done in the past, we will continue to leverage our pipeline to identify and develop additional drug candidates and to monetize select drug candidates through strategic partnerships.

Now to the LFRP; our licensees announced several developments during the quarter. ImClone Systems, a subsidiary of Eli Lilly announced its intention to expand its VEGF receptor drug candidate called IMC-1121B, currently in Phase III for breast cancer into another Phase III study for gastric cancer.

Also, they expect Phase III studies to be initiated for their two other oncology drug candidates, IMC-11F8 an EGF receptor product, and IMC-A12, an IGF-1 receptor product by the end of 2009 or early 2010. We also saw three oncology drug candidates from MedImmune, ImClone environment) and the [Interface One] clinical, trigging milestone payments to Dyax that total $2.8 million in cash for the third quarter.

Recently, LFRP licensee Merrimack Pharmaceuticals announced license of their Phase I drug candidate, MM-121 to Sanofi-Aventis. The high value licensing deal reinforces the power of our technology to identify targets of interest.

The LFRP pipeline now totals 16 clinical stage candidates and one approved product. The approved product is Wyeth's treatment for Hemophilia A, known in Europe as reflectively as in the US as ReFacto AF and in the US as Xyntha. The peptide ligand used in the purification process was identified using Dyax peptide libraries. The product is replacing Wyeth's predecessor product in the EU and in the US.

Sales for this new generation product are expected to exceed the predecessor, which in 2008 reported total sales of $360 million. As a reminder, Dyax stands to receive milestones in royalties as products from the licensees under the LFRP advance through the clinic and into the marketplace. As you can see, we have a number of exciting developments with our internal and licensee pipelines and anticipate more news over the next few months.

In summary, we have reported on progress across all core business areas, the DX-88 franchise, our internal pipeline, and our Licensing and Funded Research Program. Over the next several weeks, we would be focused on working with the FDA through the final stage of our regulatory review in anticipation of the December 1 PDUFA date.

At the same time, we will continue to move the DX-88 commercial strategy forward, advancing the marketing plans for HAE, the evaluations in other angioedema’s, and partnership discussions for licenses outside North America. I look forward to reporting on the success of our hard work in the coming periods.

I’ll now turn the line back over to the operator to begin the Q&A portion of the call.

Question-and-Answer Session


Thank you. (Operator Instructions). Your first question comes from the line of Kim Lee with Wedbush Securities. Please proceed.

Kim Lee - Wedbush Securities

Couple of questions for you. First, just on the REMS program, can you clarify what is meant by a closed distribution system? What does that detail? And also what other elements aren’t do you think are not necessary in your REMS program? And finally, can you update us on how labeling discussions are going? Thanks.

Gustav Christensen

Thank you. Kim, I think Bill Pullman will answer this question.

Bill Pullman

The closed distribution system just to take that one first was designed to ensure that a patient who had a potential anaphylactic reaction would not receive any further doses of Kalbitor, unless they have been successfully recharged. In other words, it was confirmed that, that reaction was not mistaken for an HAE attack, but it was anaphylaxis. And the distribution system was linked critically to the mandatory healthcare professional and patient enrollment registry to ensure that contraindication for anaphylaxis was not violated, while still enabling access to the product for those who indicated for the product.

And as we said, the FDAs determined that those elements to assure safe use, no longer requested, because they wouldn’t facilitate protection access, while preventing anaphylaxis. And to our understanding all of the REMS moving forward is that will consist purely of the medication guide and a communication plan. So, we have lot of elements to assure safe use that we’ve previously I think highlighted are not required. I hope that answers your question.

Kim Lee - Wedbush Securities

Do you think that there won’t be any restrictions on the label then and about anaphylaxis than [high percent] of negative reaction?

Bill Pullman

Beyond that clarification, we simply can’t comment on what the FDA might require in the label. So, we can’t speculate until we’ve finished those discussions with the FDA. Thanks.

Kim Lee - Wedbush Securities

How have label discussions just going?

Bill Pullman

We continue in active conversations with the FDA on the dosier.


Your next question comes from the line of Mark Monane with Needham & Company. Please proceed.

Mark Monane - Needham & Company

Good morning and thank you for the review. Congratulations on your progress to-date internally and externally. Question for the team overall. There are a number of products now available for the HAE space to work out, till recently there was nothing available in the U.S. Maybe some comments from you on your market research what it’s shown.

Is this going to be an example of the potentially drugs like the MDS where the influence and prevalence was higher than usually originally expected and now there is a drug on the marketing helps out to more competition in the marketplace leads to more physician awareness. Is this the kind of market you are anticipating?

Gustav Christensen

My guess is that with three companies are educating physicians and reaching through the patient organization to patients they have more than 3,500 members now, that the knowledge of available treatment and will expand faster than it would otherwise have done with just one company, that I think is very clear. The final prevalence of the disease isn’t going to change. But, the speed by which you get to the full number of patients will probably increase, yes.

Mark Monane - Needham & Company

Then can you talk a little bit more about retreatment, I think you’ve mentioned a little bit here in this trial and in this call. Where a patient’s may show up in the emergency room and have, some resolution in four hours, but not totally resolved. Can you talk about any retreatment information you have and whether that might be included in the label?

Gustav Christensen

Again Mark, we can’t talk about the label and the inflation there, lost -- those discussions are ready for conclusion. As we’ve indicated through the Advisory Committee and otherwise, there is a very low instance of rebound in our clinical trials, some patients who have had very severe attacks have required a second dose, but that has been on a very infrequent basis.

Mark Monane - Needham & Company

How about are there any data in patients that have received one therapy for HAE and then go on to receive potential the DX-88 or the other way around, do we have any information on the clinical data base on any of these patients?

Gustav Christensen

No we don’t, because in the conduct of particularly registration clinical trials, you want to keep the base line meaning the inclusion/exclusion criteria is clean as possible. So other therapies are essentially excluded so that you can see what the effect of DX-88 versus placebo is.

Mark Monane - Needham & Company

That's fair enough. I guess we'll have some information from the registry when you continue to follow patients in the real world. And then, a follow-up question on one point you mentioned on the conference call regarding your internal pipeline.

I might have missed the update on our internal programs. If you can go over your programs internally and how they are progressing from the internal pipeline? And then maybe a little bit about how you make the executive decision from LFRP and the phage display in general, which programs will be available for collaborations, or which ones will be developed internally by Dyax?

Gustav Christensen

Sure, so our technology gives license on a non-exclusive basis, meaning that any company can work on any target. If you follow the monoclonal antibody industry over the years, that was clearly the better way to actually move forward so that whoever won, if they all used your technology would owe you milestones and royalties.

So, we do not limit our licensees in what targets they can work on. So, Dyax's decision to start a new target is completely independent from what our licensees are doing. It's all based upon what we know about a target, what IP there might be available that we can log up. if the target is suitable for us to develop as a smaller company or we feel very certain that it's a very "interesting and hot" target that others would want to partner later on. So many considerations goes into it but no different probably than what other biotech companies go through in their decision process.

Mark Monane - Needham & Company

And what's the status of 2240 please, Gustav and the team?

Gustav Christensen

So that’s licensed to Sanofi-Aventis and so that is moving to (inaudible) IND, and they will tell the world when that day is, or if they don’t tell the world when it is then they'll tell them I guess when they are in Phase II or something. So the communications are under cover between us and the licensed company. So as you know from some of our slides, some of it says, confidential, simply because the company do not want to be known and they don’t want the target to be known till they traditionally announce it. So for Sanofi, they will announce 2240 within their policies and announce programs.

Mark Monane - Needham & Company

Fair enough. Thanks for the added information, and we look forward to upcoming events.

Gustav Christensen

Thank you, Mark.


Your next question comes from the line of Brian Skorney with ThinkEquity.

Brian Skorney - ThinkEquity

I am just wondering, could you guys review with us just the data you guys have from laryngeal attacks versus CSL Behring had on laryngeal attacks and how that drives you to believe that we'll see a label for DX-88, including laryngeal attacks whereas CSL does not have that?

Bill Pullman

In our Phase III experience, we treated laryngeal attacks, and we treated them successfully. In fact we have an evidence of preventing the progression of attacks, and certainly benefit over placebo in that subset.

Gustav Christensen

It was our understanding when we started our Phase III that if we wanted laryngeal attacks in our label, we had to include them in our clinical trials. To the best of my knowledge from publications, probably Behring did not include [laryngeal] in their Phase III trail, therefore the FDA did not give them an approval specifically for laryngeal attacks.


Your next question comes from the line of Phil Nadeau with Cowen & Co. Please proceed.

Phil Nadeau - Cowen & Co

First, one question on the REMS. I guess I understand why the FDA is not looking for a closed loop distribution system, but it's unclear exactly why they changed their mind. Could you give us some idea of that, is it data that you submitted or is it as much of a mystery to you as it is to us?

Gustav Christensen

I don't think it's a mystery. It went through the internal FDA review process, and they reviewed with the groups within the FDA that are dealing with recombinant proteins and other protein therapies. So the rationale that they gave us is that the risk of hypersensitivity is not unique to the DX-88, that other protein therapies with similar risk of anaphylaxis have not exhibited the need for a respective program with elements of safe use. So, while REMS is still required, it is a REMS similar to other protein therapies. So, I think it’s simply a result of a complete review within the FDA.

Phil Nadeau - Cowen & Co

What implications could this have to at home use of DX-88? Do any of the other proteins that you’ve alluded to have the ability to be used at home and what are your expectations for getting that on the label overtime?

Gustav Christensen

Let me say, it certainly not our expectation that and we will not have home use in the label that we would get if we get approved on December 1. I believe most protein drugs don’t have it in the initial label. It may be overtime proved safe enough that you can do it. But, I don’t believe traditionally that protein therapies have home use in their initial label.

Phil Nadeau - Cowen & Co

My last question then here, you mentioned that you’re preparing and filing even in advance of partnership in Europe. Can you give us some idea of how long it would take you or will take you to file in Europe? What’s your most recent expectations?

Gustav Christensen

Yeah, Bill.

Bill Pullman

Sure. This time we are working towards finalizing critical elements for at the MAA. And in particular that’s the pediatric plan and we’re filing that with the EMEA and agreed pediatric plan. So that is in progress. It’s a prerequisite for submission, and so that is heading down the track.

Phil Nadeau - Cowen & Co

Do you think that you can complete that this year or is that likely to go in to 2010?

Bill Pullman

It’s likely to going to 2010 and they are still with the moving part of the timeline being finally say it’s another pediatric plan, sort of giving an absolute specific date, when we have all the pieces locked in, then its better to do a specific date. But it will move in to 2010.


(Operator Instructions). At this time there are no further audio questions. I would now like to turn the call back over to Mr. Gustav Christensen for closing remarks.

Gustav Christensen

Well, I would like to thank all of you that dial-in and we will keep you informed on our progress as we move forward. Thank you very ladies and gentlemen.


Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and Have a great day.

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